Macau’s Economic Recovery

February 15, 2018

Macau, the autonomous island off the South Coast of China, has been experiencing economic difficulties since 2014. So much of its revenue comes from its tourism and gambling industries, and it is these that were posing challenges.

Now, however, the island is showing great signs of bouncing back. So what was the cause of the difficulties in the first place, what has changed to make recovery possible, and what is next for Macau? Join us as we take a closer look and try to answer these questions.

The First Gambling Rebound

Macau is often described as the Las Vegas of Asia. It’s the only part of China where gambling is legal, and it has been since the 19th century. Gambling has been important to the economy since it was first legalised, but it has really taken off since 2001. This is when the industry was liberalised from the monopoly it had previously been under.

Many Las Vegas operators entered the Macau market in 2001, building the Wynn Macau, Sands Macau, Venetian Macau, MGM Grand Macau and several other casinos and resorts. Australian operations like Crown Casino, and Hong Kong enterprises like the Galaxy Entertainment Group, also flocked to the island. The surge in casinos and tourism was a massive economic boost. This saved Macau in the early 2000s, when it was hit by bad global economic factors and had just had its sovereignty handed over from Portugal to Mainland China.

The Economic Downturn

In 2007 Macau’s revenues outdid those of Las Vegas and it became the highest-volume gambling centre in the world. The World Tourism Organisation rated it as a top tourism destination. Then, in 2014, things started to slump again. This was a direct result of the widespread Chinese crackdown on corruption.

The attempts to stamp out corruption were a central part of President Xi Jinping’s political agenda. The aim was to weed out government corruption, and Gambling was identified as a key target of probes. Among other results, almost 300,000 officials were indicted in 2015.

The Economic Upswing

The Chinese administration’s anti-corruption campaign continued for almost 3 years, and many VIP gamblers became afraid to visit Macau. Now, things seem to be easing off. For the first time since 2014’s first quarter, a turnaround profit was seen in 2016. As we rapidly approach the middle of 2017, Macau’s recovery streak is something that investors are taking seriously.

In November 2016 Macau’s year-on-year gambling revenue was up 14.4%, and in March 2017 it had shot up even more, to 18%. While its growth is expected to slow, the same upward turn should be maintained. Morgan Stanley has predicted mass revenue growth of 14% and then 9% for 2017 and 2018, with VIP revenue growth of 5% and then 2% for the same time periods.

Contributing Factors to Recovery

The easing of anti-corruption measures is a big part of Macau’s recovery, because this gave high-rolling gamblers more confidence in coming to play. However, there are several other factors contributing to the $29 billion gambling industry doing so much better.

Not only did VIP spenders come flooding back to the island in 2016, but the sector seems to be growing and there seem to be more of them. In addition, there is actually a lot more growth among middle spenders. As much as the VIP sector has strengthened and recovered, it only started to show growth 3 months after the middle spending sector. Lawrence Ho, the chairman and CEO of Melco Resorts, has commented that this will be the main target group in the future. Many establishments have already started this, with a lot of money going towards enticing casual gamblers and families. It seems that during the 2014 – 2016 slump the tourism industry realised it needed to develop other attractions besides gambling, and that is just what has happened.

Where to From Here?

With ever-increasing advertising opportunities and lavish resorts opening that visitors will want to see, especially on Cotai, the future in Macau is looking bright again. This is true for the impressively flexible operators, serious players, families and other tourists alike. It seems as if growth will continue, accompanied by development in the island’s infrastructure.

Among other projects a bridge between Macau and Hong Kong is underway, as is a light railway service on Macau itself. Airport expansions are also planned, and there will also soon be a new ferry terminal for Hong Kong trips.

Gambling in Macau, while legal, has always been strictly regulated which makes it a very safe option. This is yet another reason for players to choose this destination, and with the anticipated growth it’s the perfect option for investors too. There are sure to be challenges too, but everybody in Macau is in for a good time!